DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Apr. 30, 2023

DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Description of the Business

Argan, Inc. (“Argan”) conducts operations through its wholly-owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”); The Roberts Company, Inc. (“TRC”); Atlantic Projects Company Limited and affiliates (“APC”) and Southern Maryland Cable, Inc. (“SMC”). Argan and these consolidated subsidiaries are hereinafter collectively referred to as the “Company.”

Through GPS and APC, the Company provides a full range of engineering, procurement, construction, commissioning, maintenance, project development, and technical consulting services to the power generation market, including the renewable energy sector. The wide range of customers includes primarily independent power producers, public utilities, power plant equipment suppliers and other commercial firms with significant power requirements with customer projects located in the United States (the “U.S.”), the Republic of Ireland (“Ireland”) and the United Kingdom (the “U.K.”). GPS and APC represent the Company’s power industry services reportable segment. Through TRC, the industrial fabrication and field services reportable segment provides on-site services that support new plant construction and additions, maintenance turnarounds, shutdowns and emergency mobilizations for industrial operations primarily located in the Southeast region of the U.S. and that may include the fabrication, delivery and installation of steel components such as piping systems and pressure vessels. Through SMC, which conducts business as SMC Infrastructure Solutions, the telecommunications infrastructure services segment provides project management, construction, installation and maintenance services to commercial, local government and federal government customers primarily in the Mid-Atlantic region of the U.S.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and a variable interest entity (“VIE”) prior to its deconsolidation in the fourth quarter of the year ended January 31, 2023. All significant inter-company balances and transactions have been eliminated in consolidation. In Note 14, the Company has provided certain financial information relating to the operating results and assets of its reportable segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions.

The Company’s fiscal year ends on January 31 each year. The condensed consolidated balance sheet as of April 30, 2023, the condensed consolidated statements of earnings and stockholders’ equity for the three months ended April 30, 2023 and 2022, and the condensed consolidated statements of cash flows for the three months ended April 30, 2023 and 2022 are unaudited. The condensed consolidated balance sheet as of January 31, 2023 has been derived from audited consolidated financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto, and the independent registered public accounting firm’s report thereon, that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023 (“Fiscal 2023”).

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of the financial position of the Company as of April 30, 2023, and its earnings and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

Accounting Policies

Accounting Policies

In March 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”), which provide an election to account for tax equity investments using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of the tax credits and other tax benefits received and presented net as a component of income tax expense. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the effects, if any, that the adoption of ASU 2023-020 may have on its financial position, results of operations, cash flows, or disclosures.

There are no other recently issued accounting pronouncements that have not yet been adopted that the Company considers material to its condensed consolidated financial statements.

Available-For-Sale Securities

Available-For-Sale Securities

At each balance sheet date, available-for-sale securities are recorded at fair value, with unrealized gains and, to the extent deemed temporary, unrealized losses reported as a component of accumulated other comprehensive loss. Interest income, accretion of discounts, amortization of premiums, realized gains and realized losses are included in other income or expense, as applicable, in the Company’s condensed consolidated statement of earnings. The Company determines the cost of securities sold based on the specific identification method. The Company determines the appropriate classification of available-for-sale securities based on whether they represent the investment of cash available for current operations, as defined in Accounting Standards Codification (“ASC”) 210-10-45-1 and ASC 210-10-45-2. The classification of the available-for-sale securities is reevaluated at each balance sheet date.

The Company considers its available-for-sale securities impaired when a decline in fair value below its cost basis is determined to be other than temporary. The Company evaluates whether the decline in fair value is other than temporary based on the amount and duration of the period that the fair value of the available-for-sale security is less than its cost basis, overall market conditions and trends, the Company’s intent to sell the available-for-sale security and whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery. If a decline in fair value is determined to be other than temporary, the Company records an impairment loss and establishes a new cost basis.

Fair Values

Fair Values

ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Inputs are unobservable inputs based on a company’s own assumptions.

At April 30, 2023 and January 31, 2023, certain amounts of cash equivalents were invested in money market funds with net assets invested in high-quality money market instruments. Money market funds were classified as Level 1 due to the short-term nature of these instruments and as their fair value is based on quoted prices in active markets for identical assets. As of April 30, 2023, all of the Company’s available-for-sale securities were U.S. Treasury notes and were classified as Level 2, as their fair value is measured based on quoted prices in active markets for similar assets.  As of April 30, 2023 and January 31, 2023, the Company did not have any financial assets measured on a recurring basis using Level 3 inputs. The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s other current assets,

which primarily include cash, short term investments, accounts receivable and contract assets, and its current liabilities are reasonable estimates of their fair values due to the short-term nature of these items.

The following table shows the Company’s financial instruments as of April 30, 2023 and January 31, 2023 that are measured and recorded at fair value on a recurring basis:

	April 30, 2023						January 31, 2023
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	Inputs		Inputs		Inputs		Inputs		Inputs		Inputs
Money market funds	$	112,546	$	—	$	—	$	68,647	$	—	$	—
Available-for-sale securities		—		30,376		—		—		—		—
Totals	$	112,546	$	30,376	$	—	$	68,647	$	—	$	—

Treasury Stock

	April 30, 2023						January 31, 2023
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
	Inputs		Inputs		Inputs		Inputs		Inputs		Inputs
Money market funds	$	112,546	$	—	$	—	$	68,647	$	—	$	—
Available-for-sale securities		—		30,376		—		—		—		—
Totals	$	112,546	$	30,376	$	—	$	68,647	$	—	$	—

Variable Interest Entity

Variable Interest Entity

In January 2018, the Company was deemed to be the primary beneficiary of a VIE that was performing the project development activities related to the planned construction of a new natural gas-fired power plant. In the fourth quarter of Fiscal 2023, the Company was deemed to no longer be the primary beneficiary of the VIE, and the VIE was deconsolidated. Prior to deconsolidation, the account balances of the VIE had been included in the Company’s consolidated financial statements.